Nigeria entered 2026 with one of its most significant tax reforms in decades. Effective from 1 January 2026, the revised personal income tax (PIT) framework introduces broader tax-free thresholds, more progressive income bands, and a clearer structure aimed at improving compliance and fairness.
For employers, HR leaders, and payroll teams, this reform goes far beyond updated tax tables. It directly affects Pay As You Earn (PAYE) calculations, payroll system configurations, employee take-home pay, and compliance risk. Understanding how the old and new tax regimes differ is essential to running payroll accurately in Nigeria in 2026 and beyond.
Why Nigeria Reformed Its Tax System
Prior to 2026, Nigeria’s personal income tax system was widely viewed as regressive and complex. Low-income earners were taxed from relatively low thresholds, while middle-income earners reached the highest marginal rate quickly. For employers, this translated into frequent payroll errors, employee dissatisfaction, and compliance challenges.
The 2026 reform aims to:
- Reduce the tax burden on low- and middle-income earners
- Introduce a more progressive and transparent tax structure
- Improve ease of doing business and tax compliance
- Support economic growth and formal employment
These changes are particularly timely as Nigeria continues to position itself as a key African growth market, supported by a large population, a growing talent pool, and rising regional influence.
Why Nigeria Is Attractive – Yet Complex – for Business Expansion
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Nigeria offers compelling opportunities for companies looking to expand into Africa:
- Africa’s largest population, providing access to a vast workforce and consumer base
- A young, digitally savvy talent pool, particularly in technology, services, and professional roles
- Competitive labour costs compared to more mature markets
However, these opportunities come with operational realities:
- Payroll regulations vary across income levels and require precise PAYE calculations
- Compliance expectations are increasing alongside tax reform
- Tax Identification Number (TIN) requirements and reporting standards are tightening
For organisations scaling operations or hiring at speed, payroll accuracy and compliance readiness are no longer optional – they are critical.
Old vs. New Personal Income Tax Rates in Nigeria (2026)
The most notable change under the new framework is the introduction of a 0% tax rate on the first NGN 800,000 annual income, along with wider income bands and adjusted marginal rates.
| Annual Taxable Income |
Old Tax Rates |
New Tax Rates (2026) |
| Up to NGN 800,000 |
Up to 15% |
0% |
| NGN 800,001 – NGN 3,000,000 |
19% – 21% |
15% |
| NGN 3,000,001 – NGN 12,000,000 |
21% – 24% |
18% |
| NGN 12,000,001 – NGN 25,000,000 |
24% |
21% |
| NGN 25,000,001 – NGN 50,000,000 |
24% |
23% |
| Above NGN 50,000,000 |
24% |
25% |
This redesign makes the tax system more progressive, with marginal rates increasing gradually as income rises.
What This Means for Employees’ Take-Home Pay
1. Low-Income Earners Benefit the Most
Employees earning up to NGN 800,000 annually now pay no personal income tax at all, compared to being taxed under the previous regime. This significantly improves disposable income and aligns with government efforts to protect lower-wage earners.
2. Middle-Income Earners See Reduced Tax Pressure
Under the old system, many middle-income employees quickly reached the highest tax bracket. Under the new framework:
- Earnings up to NGN 50 million are taxed at 15% – 23%, instead of 24%
- Wider bands reduce sudden jumps in marginal tax rates
For many professionals, this results in higher net pay and more predictable tax outcomes.
3. High Earners Face a Targeted Increase
A new 25% top marginal rate applies only to income above NGN 50 million. While this represents a modest increase, it affects a narrow group and is balanced by broader structural incentives for businesses.
Why This Matters for Payroll Processing
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Under the 2026 tax framework, using outdated PAYE formulas will result in incorrect deductions and may expose companies to penalties and reputational risk. Employers must ensure payroll systems:
- Apply the 0% tax band correctly
- Calculate marginal rates accurately across wider income ranges
- Reflect statutory exemptions and reliefs
For companies hiring or expanding in Nigeria, these changes reinforce the need for automated payroll systems or compliant payroll outsourcing solutions.
How Companies Can Navigate Payroll Complexity in Nigeria
Despite its volatility, Nigeria is viewed as a high-reward expansion market given its large population of over 200 million people – and considered to be one of the larger economies in Africa. This scale makes it very attractive for consumer goods, fintech, telecoms, and services.
Understanding and navigating complex payroll, compliance, tax and HR infrastructures is key to expanding into Nigeria which also boasts natural resources like oil and gas reserves and diversification into agriculture, technology, manufacturing, and opportunities beyond hydrocarbons.
This is where solutions such as BIPO’s total HR solutions come into play:
- Global Payroll Outsourcing: Reduce administrative burden while maintaining compliance with Nigerian tax authorities
- Employer of Record (EOR): Hire Nigerian talent quickly and compliantly, without setting up a local legal entity
By combining local expertise with technology-driven payroll management, organisations can focus on growth while mitigating compliance risk.
Final Thoughts
Nigeria’s 2026 personal income tax reform marks a turning point for both employees and employers. The new framework delivers fairer outcomes and improved take-home pay for most workers, while demanding higher standards of payroll accuracy and compliance from businesses.
For organisations expanding or operating in Nigeria, success will depend on robust payroll systems, regulatory awareness, and trusted local expertise. With the right HR and payroll partner in place, companies can navigate change confidently and unlock the full potential of one of Africa’s most important growth markets. Connect with our in-country experts and get started today.
